Recent Buy : Tim Hortons!

Today I added 32$ a year or almost 0,09$ per day to my passive income stream. My goal is to reach 65$ per day, 365 days per year or 24,000$/year to retire at 45 years old.

I know, 9 cents doesn’t seem a lot but hey! It’s helping a little and it’s gonna grow by itself over time!

Let’s see how I did that :

I have decided to buy 25 shares of Tim Hortons at 59,17 CAN$.

Tim Hortons is a well-known brand here in Canada. I go there myself almost everyday! Their coffee is addictive! Trust me! 😉

I like to invest in companies I believe in. Tim Hortons’ drive through always has a lineup in the morning, in the afternoon and at night! People just love Tim Hortons! I find it very comforting to see all these customers waiting in line craving for their coffee like junkies!

While the canadian market appears to be pretty saturated, there are Tim Hortons restaurants everywhere, I think that it’s a brand that will grow and expand abroad. Plus, they have a strong balance sheet.

In the past five years, Tim Hortons’ income have increased by 10,5% per year while its earnings per share have increased by 12,50%.

The company is also paying a growing dividend. The current yield is pretty low (2,16%) and under my threshold of 3,0% but they just instated that dividend a couple of years ago and they have increased it at an average of 28,10% per year in the past three years.

While this dividend growth is not sustainable over the long-term, the dividend is and I suspect they will continue to grow it at double digits for the next couple of years. The payout ratio is still pretty low, the dividend is fully covered by the free cash flow and Tim Hortons have also purchased back more than 19% of their shares over the last five years.

Morningstar rates Tim Horton as “fairly valued” at 60$ and gives it a Narrow moat.

While I prefer wide moat stocks over no moat stocks, narrow moat and medium moat stocks can find a place in my portfolio if I think that these companies have strong brands and will continue to grow over time.

Tim Hortons has a simple business model, easy to understand and predictable, a narrow moat, a strong balance sheet and a plan to expand operations over the borders.

While I might be dead wrong, I think that Tim Hortons will still be there 20 years down the road and will find ways to export their canadian success abroad. It has already started with the US and the persian gulf.

At a P/E a little above 20, Tim Hortons’ stock was definitely not a cheap buy. I prefer undervalued stock and to my opinion, I think I bought it at a small premium. But this P/E is pretty in line with its five years P/E ratio average and under the 27,6 P/E ratio of its industry based on Morninstars.

The stock market is expensive right now… Finding fairly or undervalued stocks is not an easy task.

I think that Tim Hortons is a wonderful business and Warren Buffett teaches us that it is often better to invest in wonderful business at a fair price than in so-so businesses at a wonderful price. We’ll see what the future reserves us!

The first quarter earnings missed expectations by 2 cents per share which caused a small drop in share price (+/-5%) this week. I decided to jump in with 25 shares… Not a big buy, but I’ll probably add more shares over the years to come.

I still have +/- 8000 CA$ to invest and hope for a dip pretty soon.

What about you? Do you own Tim Hortons’shares? Which stocks do you have on your watch list?

[author] [author_image timthumb=’on’]http://quityourdayjob101.com/wp-content/uploads/2014/03/ID-10050051.jpg[/author_image] [author_info]Hi, my name is Allan. I’m the masked blogger. Like you I’m a modern slave, prisoner of a 9@5 job in Corporate America. They told us when we were young that we would live in a society of leisure and that technology would permit us to work only a couple of hours per day. But we live in a society of stress and uncertainty. My situation could be a lot worse and I know it. So many humans are suffering on this planet. But a golden cage remains a cage anyway. At least, I have an escape plan. I will retire before 45 years old over my passive income. This is a dream that is so powerful that I will make sure it happens. To build my wealth, I mainly invest in undervalued dividend growth stocks. [/author_info] [/author]

About The Author

Hi, my name is Allan. I'm 33 years old and I live in Canada, one of the best but one of the coldest country in the world! I'm the masked blogger. Like you I'm a modern slave, prisoner of a 9@5 job in Corporate America. But, I have an escape plan. I will retire before my 45th birthday over my passive income. This is a dream that is so powerful that I will make sure it comes true. To build my wealth, I invest in undervalued dividend growth stocks. Follow me! We will retire early! We will retire rich!

4 Comments

A very interesting pick for a dividend growth stock. I must say that after reading the many dividend blogs out there Tim Horton’s is a name that never comes up. Modest payout ratio, decent yield and not too crazy of a PE. Thanks for highlighting this dividend secret.

05/15/2014

Allan

Hi Divhut, thanks for the comment. Tim Hortons is a Canadian Dividend Aristocrats. It’s a very very popular brand here in Canada and it’s in business since 1964. But, as I pointed out, I might be dead wrong… So far, the company did great but the Canadian market is pretty saturated. They now have 600 shops in the US but they had to close some of them. US expansion is a bumpy ride for Tim Hortons. In response, they recently hired Mark Caira as their new CEO. He has experience at Nestle in international expansion. As you pointed out, Tim Hortons’ share are expensive… Low payout ratio. High p/e etc… But I believe in this company and I think it’s going to succeed its expansion plan but, if the expansion in broader markets fails, I might bite myself for this buy! Not a classic pick for sure but one with a lot of potential… To my own belief. You might be interested in this post from Motley fools http://www.fool.ca/2014/05/13/10-top-dividend-growth-stocks-in-the-sptsx-60/?source=c75yhocs0040001

I also own Tim Hortons. I bought around the mark and find it difficult to buy more at current prices. If it dips to that would be more interesting. I think it’s a great company to own for years to come. Like you, i’m also sitting on cash. Very few deals out there.

06/04/2014

Allan

Hi,

Thank you for passing by. It feels great to know that a seasoned dividend growth investor like you is a fellow shareholder of Tim Hortons.

You’re right. Tim Hortons stock is expensive. But when I look at it’s 5 years averages, the current yield on cost is higher, the price/cash flow and price/sales ratios are lower… Morningstar rates it as fairly valued at 60$.

So, I decided to jump in…

I hope a pullback of at least 10% is going to happen pretty soon. It usually happens during summertime.

Disclaimer

I am not a licensed investment advisor. I am not an investment professional. I am not a tax professional. I am not a stock guru. I’m a plain and ordinary man pursuing a dream. I want to be financially free. I truly believe I will. But I might be dead wrong!
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